Black Crown Challenges Bud’s Image in AB InBev Innovation Push

By Clementine Fletcher -
Dec 27, 2012

In 2013, U.S. drinkers will be able
to taste a new take on their iconic Budweiser. Black Crown, a
stronger version of the American classic, is just one example of
the brewer’s focus on faster, more dynamic innovation.

The drink, which Anheuser-Busch InBev NV (ABI) says has a more
distinct flavor and taste than regular Budweiser, was selected
for production from 12 experimental varieties submitted by head
beermakers at each of the brand’s U.S. breweries. With an
alcohol content of 6 percent, Black Crown will pack more of a
punch than the standard brew’s 5 percent and is scheduled to go
on sale in the U.S. early next year.

Attention-grabbing drinks are becoming more important for
global brewers such as AB InBev as they seek growth in the face
of competition from craft beers, wine and spirits. Changing the
attitude of consumers toward established brands and keeping them
interested is proving crucial.

“Black Crown’s bringing Bud to a more sophisticated crowd
and occasion,” AB InBev Chief Marketing Officer Miguel Patricio
said in an interview in New York. While the main purpose of
innovation is to boost sales, it is also about creating “better
brand health,” said the 46-year-old executive, who started in
the position in July.

AB InBev, created in 2008 when InBev NV bought Anheuser-
Busch Cos. for $52 billion, has spent the last four years
selling assets, stripping out costs from the combined business
and paying down debt. Now, with the help of new brews including
Bud Light Platinum and Bud Light Lime-A-Rita, the Leuven,
Belgium-based brewer is honing its focus on selling more beer.

New Products

“When we bought A-B, our focus was much more on
deleveraging,” said Patricio, who has also led the company’s
Asia-Pacific unit. “This is behind us. Now we’re focusing on
what we’ve been seeding” in new products.

AB InBev has been struggling to stem declines in Budweiser
sales and boost Bud Light revenue in the U.S., the world’s
second-biggest beer market. Sales of Budweiser to U.S. retailers
fell 6 percent by volume in the nine months through September.

About 6 percent of AB InBev’s beer volume globally last
year was the result of innovation and “renovation
initiatives,” Patricio said. Bud Light Platinum, a higher-
strength beer in a blue bottle, and the margarita-flavored Lime-
A-Rita were introduced this year and helped add about 0.75
percentage point to the brand’s 21.5 percent share of the U.S.
market in the third quarter, AB InBev estimates.

“Platinum was by far the biggest source of growth for ABI
in the last three months,” Trevor Stirling, an analyst at
Sanford C. Bernstein, said in a Dec. 11 note.

AB InBev plans to introduce a new Budweiser can with a
distinctive waistline shape in the U.S., and has added different
sized and shaped cans globally, including a red-and-gold dragon-
patterned bottle in China to celebrate Chinese New Year. New
Brahma cans in Brazil enable the entire lid to be peeled off
instead of just a tab, creating a ready-made beer glass.

“We’re feeding this funnel of innovation constantly,”
Patricio said, adding that new products typically take three or
four years to develop.

Renovating or designing new varieties of established
drinks, such as Stella Cidre and Lime-A-Rita, is more important
than creating entirely new brands, though the company isn’t
avoiding the latter, Patricio said.

Marketing Spending

Known for its prowess in reducing costs, AB InBev is also
seeking to sell more profitable drinks. Bud Light Platinum is
priced about 35 percent higher than Bud Light, according to
Stirling.

Still, the brewer is resisting cuts to sales and marketing
spending, which climbed 7.7 percent in the first nine months of
2012, after rising 4.1 percent a year earlier. Patricio declined
to comment on whether spending will continue to rise. AB InBev’s
Ebitda margin, a measure of profitability, is wider than main
competitors SABMiller Plc (SAB), Carlsberg A/S and Heineken NV.

The executive said it’s easier to be agile with innovation
and marketing in the digital age because of better and faster
consumer feedback. AB InBev is soliciting ideas from customers
through the “open innovation” section of its website and is
using technological innovation around gigs and sports events to
drive interaction through social-media websites such as
Facebook. It has a digital innovation center in Palo Alto,
California, the heart of Silicon Valley.

“It’s much easier to make consumers loyal when they
experience an event” with a company, Patricio said.

That’s not to say that AB InBev has perfected the process.
Profit this year was hurt by higher distribution and
administration costs in the U.S. as the brewer struggled to keep
up with demand for Platinum and Lime-A-Rita, which required
extensive -- and expensive -- countrywide distribution.

“We have to be better” at planning, Patricio said. Still,
“I wish we had that problem everywhere -- of having innovation
be so successful.”